10. Global Contracting
10.2. VAT consequences of supplies under global contracting
10.2.1. Determining of the supplier and the customer
For supplies provided under global contracting arrangements, the application of VAT is determined by reference to whom the supplier and the customer of each supply are.
A global contract should specify which entity is contractually responsible for the supplying of services in each case. There are framework agreements whereby local branches or group entities of the service provider carry out the underlying services as subcontractor of the head office of the service provider. In some cases, it may be possible that the local branches or group entities are explicitly mentioned in the framework agreement as possible sub-contractors or service providers under the global contract. The Customer is defined as “a Person who receives Goods or Services”(42). Often, this can be determined by which Person instructs the supplier, and by the Person who enters into a contract with the supplier.
Where a framework agreement exists, it is important to examine the individual transactions which, as separate supplies, will in principle have separate VAT treatments. In cases where the contractual relations and obligations all fall under a single global framework agreement, the entity actually using or benefiting from the supplied services is more determinative to establish which entity is the customer in respect of the supply.
(42) Article 1, Definitions, Unified VAT Agreement
10.2.2. Charges within a single legal entity
If a Saudi established legal entity with a head office located in KSA has a branch in a different country, or vice versa, any charges between the head office and the branch are not subject to VAT (43). However, in these cases it is crucial to establish which establishment of that legal entity (head office or branch) is most closely connected to any supply made to or received from a third party supplier.
10.2.3. Zero-rating under global professional services contracts
Professional service providers in the KSA may provide services under global contracts entered into by affiliated service providers in other countries. Usually, the local KSA supplier will be instructed by a non-resident affiliated entity to provide professional services. The KSA supplier will issue an invoice to the non-resident affiliated entity for its services, but the services may have some link to a person in the KSA or an activity carried on in the KSA. The scope of the KSA supplier’s activities will determine whether it can apply the zero-rate to its invoice.
● In cases where the Saudi supplier does not provide advice, direct assistance or other direct benefits to a person in the KSA (or has no direct contact with a person in the KSA), and provides services intended for the affiliated entity’s use, the direct benefit of the services is provided to the non-resident affiliated entity. The Saudi supplier should apply the zero- rate, provided the other conditions are met.
● In cases where the Saudi supplier provides advice or direct assistance to a Saudi entity or person, or provides a deliverable which is intended for direct use by the KSA entity or person, the direct benefit of the services is received in the KSA. The Saudi supplier should not apply the zero-rate and charge KSA VAT at the standard rate. The global contracting examples in section 10.2.5. below apply these concepts.
10.2.4. Analysing a global contract
The contractual arrangements, in combination with the actual facts and circumstances, should be taken into account on a case-by-case basis to determine how each supply of services is qualified from a VAT perspective. Any small differences can result in material differences to the application of VAT.
(43) Article 18(1), Supplies by a legal Person to itself, Implementing Regulations
Generally speaking, the contractual arrangements are indicative to determine the parties’
intentions and the VAT consequences of a supply. However, in certain cases the contractual arrangements are not in line with the actual facts and circumstances of a supply. In these cases, VAT consequences of the supply should be determined in accordance with the actual facts.
ZATCA can apply VAT to the transactions based on the actual facts (rather than from the form of the arrangements) in cases where the contractual arrangements give an incorrect VAT result, or where parties structure the supply of services in such a way that lead to the avoidance of levying VAT in the KSA.
10.2.5. Examples of Global contracting scenarios Example (26):
Europe Bank Ltd, established in the UK, enters into a global contract with Global Consultancy UK, a consultancy service provider established in the UK. Part of the consultancy services rendered under the global contract consist of making an impact assessment for a potential expansion of the business of the KSA branch of Europe Bank Ltd in Riyadh. The activities of the impact assessment are carried out by Global KSA Consultancy, a group entity of Global Consultancy UK in the KSA. Based on the contractual arrangements, Global KSA Consultancy works as subcontractor for Global Consultancy UK and Global Consultancy UK renders the service to Europe Bank Ltd. However, the consultants of Global KSA Consultancy work at the office of the KSA Branch of Europe Bank Ltd, and provide direct assistance to the KSA Branch teams.
The diagram below shows how the services are contractually provided, and with a dotted line representing the provision of direct benefits under the agreement.
Outside KSA Europe Bank Limited
(head office)
Europe Bank (KSA branch)
Europe Bank KSA reports 5% VAT, Reverse Charge
Global Consultancy KSA
Global Consultancy UK (head office)
Within KSA (GLOBAL CONTRACT)
Contract for supply of consultancy services
Subject to KSA VAT under Reverse Charge
Elements of services provided directly to KSA branch
Cost share for portion passed to branch-no supply
Supply of sub-contracted consultancy services:
Direct benefit to KSA receipient KSA VAT at 5%
Based on the contractual relations, Global KSA Consultancy will issue an invoice for its activities to Global Consultancy in the UK. In this case, as the direct benefit of the services is provided to Europe Bank, Global KSA Consultancy is not able to apply the zero-rate to its invoice and should charge VAT at 5% to Global Consultancy UK.
Under the global contract, Global Consultancy will issue an invoice for the impact assessment to the head office of Europe Bank Ltd in the UK. Although based on the global contract, the billing arrangements will be in the UK, the services are actually consumed by the KSA Branch of Europe Bank Ltd and therefore the KSA Branch of Europe Bank Ltd qualifies as the establishment most closely connected to the supply (and therefore, the recipient of the supply).
The KSA Branch of Europe Bank Ltd should self-assess KSA VAT on the invoice issued by Global Consultancy UK via the Reverse Charge Mechanism.
Example (27):
Global Consulting UK also has a global contract with Asia Bank Pty Limited, which has a head office in Singapore and local companies established in many countries throughout
Asia, including Asia Bank KSA.
Global Consulting UK enters into a contract to carry out an impact assessment for Asia Bank Pty Limited across multiple countries. It arranges for its subsidiary, Global Consulting KSA, to carry out specific information gathering tasks at the premises of Asia Bank KSA. The local consulting team carry out these tasks but do not provide services directly to Asia Bank KSA. The analysis of the information, conclusions and recommendations are carried out at a project-wide level by Global’s head office.
Global Consulting KSA is able to charge Global Consulting UK for the time spent in carrying out the tasks. This charge can be zero-rated, as the direct benefit of the services is provided to Global Consulting UK. The services are not directly provided to Asia Bank KSA (whilst a KSA resident entity will later receive some indirect benefit from the services, this does not affect how VAT applies to Global Consulting KSA’s supply).
Global Consulting UK provides its full report and conclusions to Asia Bank Pty Limited. Asia Bank’s head office then acts on the report and provides feedback and direction to its subsidiary companies. It also charges a portion of the report costs.
Asia Bank KSA’s payment of the charge from its head office is consideration for the receipt of services from a non-resident, Asia Bank Pty Limited. Asia Bank KSA must report VAT on the receipt of these services under the Reverse Charge Mechanism.
Asia Bank Pty Limited (head office)
Asia Bank KSA (subsidiary
Asia Bank KSA reports %5 VAT, Reverse Charge
Global Consultancy KSA
Global Consultancy UK (head office)
Within KSA (GLOBAL CONTRACT)
Contract for supply of consultancy services: provision of conclusions
and recommendations Outside scope of KSA VAT
No services provided directly to Asia Bank
Supply of consultancy services: cost share for portion passed to subsidiary
Supply of consultancy services: specific subcontracted tasks KSA VAT at 0%
Outside KSA